It is becoming a New Year's tradition in Europe to wake up on Jan. 1 with
a big Russian headache. At the beginning of 2006 and 2009, Russia cut off
energy supplies to Ukraine after disagreements over natural-gas prices,
which subsequently caused fuel shortages in the European Union in the dead
of winter. This January, all eyes are trained on Belarus, which has been
having its own quarrel with Moscow over oil prices, threatening European
energy supplies once again. But three weeks into the current standoff,
there's been a twist: Kazakhstan, another former Soviet republic, stepped in
last week to offer Belarus its own oil. Now the Kremlin's most reliable tool
for controlling its neighbors  energy blackmail  is at risk of
blowing up in its face.

The quarrel began typically enough. Belarus, like many ex-Soviet countries,
has enjoyed subsidized oil and gas supplies from Russia for two decades, in
part to ensure its loyalty after the collapse of the Soviet Union. It has
even been allowed to buy Russian crude oil on the cheap, refine it at home
and sell it on to Europe at a huge profit. But in the past three years,
Belarusian President Alexander Lukashenko has started to assert his
independence in subtle ways. Following the 2008 Russia-Georgia war,
Lukashenko declined to recognize the breakaway Georgian republics of South
Ossetia and Abkhazia, despite pressure from Russia to do so. Lukashenko also
joined the E.U.'s Eastern Partnership initiative, created in 2008 to
strengthen ties between Europe and the ex-Soviet bloc, much to Moscow's
dismay. And last June, Belarus refused to attend a key security summit in
Moscow after Russia slapped a ban on Belarusian dairy products. (See pictures of Russia celebrating Victory Day.)

Then late last year, the spat escalated when Russia decided that Belarus no
longer deserved its energy subsidies. When the two countries' existing oil
contract expired on Dec. 31, Russia demanded additional payments of a
whopping $2.5 billion, which amounts to about 5% of Belarus' entire economy.
The Russian government also hinted that in order to keep oil prices down,
Belarus should give Moscow a stake in its energy infrastructure  namely the
oil refineries it uses to process oil for resale to Europe. This would play
into Russia's larger aim of controlling the energy supply chain from the oil
fields of Siberia to the gas stations of Western Europe.

But for weeks, Belarus has refused to accept Russia's conditions, putting
relations between the countries on ice and threatening to leave swaths of
Europe in the cold. Talks between the two sides eventually dissolved into an
exchange of letters with competing demands. But despite the tough position
Lukashenko staked out, analysts believed that Russia would get its way in
the end, as Belarus' economy and security are still deeply dependent on
Russia despite improved relations with the West. Lukashenko admitted as much
last month when he said that severing ties with the Kremlin  as
Ukrainian President Viktor Yushchenko has done  would bring about his
"political death." (See pictures of Vladimir Putin's patriotic youth camp.)

Then, on Jan. 19, three weeks into the dispute, Kazakhstan stepped in with a
game-changing offer. It said that if Russia refuses to provide oil to the
Belarusian refineries, it would be happy to take Moscow's place. The
Kazakhs also said they would be willing to buy a stake in Belarus' Naftan
refinery, which Russia's largest oil companies have coveted. "The demands of
Belarusian refineries will be filled by Kazakh oil," said Anatoly Smirnov,
Kazakhstan's ambassador to Belarus, adding that the two nations' Presidents
have already discussed the idea and "no one has refused."

In most parts of the world, this would seem like a completely normal
arrangement for two countries to make. But this is Russia's backyard. And
Moscow, which has yet to react to the Kazakh offer, may not take kindly
to two of its former republics' striking an energy deal behind its back. The
offer demonstrates, however, that many former Soviet states might not care
anymore if they anger their former benefactor. A sense of defiance has grown
in the region since the Russia-Georgia war, which proved that Moscow would
not stop at economic bullying in its efforts to maintain influence over its
neighbors. (Read "Russia's Gazprom Diplomacy: Turning Off Europe's Heat.")

"This [conflict] totally changed the defense paradigm. It became clear that
having both true independence and national security was impossible in
Russia's sphere of influence," says Anatoly Gritsenko, who served as
Ukraine's Defense Minister from 2005 to 2007, when relations between Russia
and Ukraine worsened considerably. One method of surviving in this
environment, Gritsenko says, is to build closer security ties with other
former Soviet states, as Georgia and Ukraine did after pro-Western leaders rose
to power in the countries in 2004 and 2005, respectively.

If a partnership between Belarus and Kazakhstan, two
of Russia's most loyal allies, does come to pass, it could further weaken Russia's influence in
the region. But considering the dependence of both countries on trade with
Russia, this still seems like a distant prospect, and some analysts say
Kazakhstan's offer to Belarus is most likely a bluff. It would be costly and
difficult for Kazakhstan to ship oil to Belarus, and Belarus could not
afford to pay fair-market prices anyway, says Denis Borisov, an analyst at
Bank Moskvy, one of Russia's largest banks. Kazakh companies could, however,
undercut Russian bids for the Naftan refinery, he says, which would be a
major blow to Russia's energy strategy in Eastern Europe. (See pictures of the Russia-vs.-Georgia war.)

One thing is for certain  Russia is now watching both countries
carefully. If Belarus and Kazakhstan go ahead with a deal, Moscow may need
to find new ways to contain the rumblings of mutiny in its neighborhood.